Commitments of Traders: Strategies for Tracking the Market and Trading Profitably

Floyd Upperman utilizes such popular indicators such as W bottoms, reversals and swing trades, usually with his own unique spin, but primarily in tandem with his main area of expertise: the Commitments of Traders (COT) report. The COT, complied by the CFTC every Tuesday and released the following Friday, details how the major market players are positioned. Upperman effectively defines the participants — commercials, non-commercials and fund managers — and outlines their respective functions and probable market impact. Long/short ratios within trader classes tend to go to extreme levels at impending market turning points. Upperman accordingly uses the COT report as a leading indicator set-up mechanism. When subsequent lagging technical signals confirm the imbalance, he enters a corresponding position.

The overview is promising, but as the book gets rolling, you get the sense that the elements are not being tied together as promised. It’s okay for the author to state upfront that there are undisclosed proprietary components to his methodology, but you would not expect there to be anything glossed over within the crux of the book — the COT report. While the theory of imbalanced holdings is clear enough, little is offered to define where such thresholds would be. I re-read sections, but still couldn’t grasp anything along the lines of, “it’s bullish if the consumer commercial group is 25% bigger than the producer side” or “the funds carry more weight than the commercials in this set-up.” It doesn’t help that he offers random examples of how he profited during extreme time frames because you don’t get a sense of how to extrapolate the scenarios into the future.

I always enjoy encountering signals I hadn’t thought of for my own testing and this book offers a reasonable amount of that. Again, though, I was expecting more in the way of correlation with the main COT theme. It seemed at times like Upperman was going on signal definition tangents at the expense of how they would tie into the COT readings. In short, this book is not lacking for information — just focus and to some degree, clarity.

Art Collins is an active, long-time trader. He is the author of” When Supertraders Meet Kryptonite” and more recently, “Market Beaters.” E-mail: artcollins@ameritech.net.